Jim Chalmers has bet the house, literally, on his Budget reshaping the property market without wrecking it for the millions of Australians who already own one. The weekend’s clearance rates gave him a little breathing room. They didn’t give him a verdict.
Treasurer Jim Chalmers and his boss, Anthony Albanese, were given some good news at last, with the weekend auction clearance rates coming in at the best level for seven weeks, making some agents think that the market is “stabilising” after coping with the Budget tax changes, three interest rate rises this year and the hip pocket hit from the Iran war petrol price hikes.
However, these are too early days for assessing how the 2026/27 Budget changes will affect house prices. The time when that view could be sensibly formed will be around May of 2028, when the next election will have to be called.
By then, the voters of Australia will get to see what has happened to house prices, the value of existing homeowners’ properties and the entry of young people into the property market. By that time, the economy should have seen inflation down and interest rates on the slide, giving rise to a stronger economy.
It will also be enough time to assess how the Budget tax changes have stimulated building and what the Albanese Government has done about too high immigration levels. All the above should prove whether Dr Chalmers will be remembered as a genius or a dope.
The Treasurer’s Budget has attacked the demand side of the property market, reducing the demand for existing properties by taking away negative gearing and the 50% capital gains discount for investors. However, these money-makers could show a lot more interest in new properties, which will still have negative gearing and the discount.
Only time will tell if the Budget makes builders build to improve the supply of properties. If it does, what then will happen to house prices?
You see, Chalmers has gambled that the voters who own homes will cop a fall in the value of their prized properties that underpin their wealth. It also has explained why the bank of ‘mum and dad’ has been happy to make loans to their best customers, their adult kids, but post-Budget this bank isn’t as secure as it once was.
Meanwhile, the auction clearance rates say nothing about prices, which will need to be tested for at least a year before the Budget’s impact on the sector can be assessed. And then there’s the worrying issue of negative equity, which recent borrowers could face if their deposit was small, the price they paid was high and the loan they service is huge.
This could hit many in the Government’s 5% Deposit Scheme, which allows first home buyers to purchase a home with a minimum deposit of just 5%, or 2% for single parents, without needing to pay Lenders Mortgage Insurance. While this scheme aims to make home ownership more accessible by reducing upfront costs and removing income caps and waiting lists, these people don’t need the value of their home to fall.
And because the Government has taken on the liability that insurers used to cover, this could be a potential problem for future treasurers. Thankfully, Australians’ love of property will stop this from happening.
That said, Dr Chalmers has really given property owners and investors tough medicine to swallow.
The AFR not only interviewed real estate agents, who are largely always optimistic, but they also talked to property research expert Louis Christopher of SQM. This guy is virtually a property price historian and if you are going to cop a forecast for the housing outlook, this is your guy.
He told the AFR’s Bonnie Campbell that while tight volumes had put a floor under clearances for now, the property downturn had a long way to go. “If we see another cash rate rise, you’re going to see more forced selling and more distressed selling, and we are concerned with some projects in Sydney where it looks like some developers will hit the wall,” Christopher said. “On our numbers, house prices are now falling in Brisbane and Perth, but still rising in Hobart, Darwin and Canberra, albeit at much slower rates.”
Following the Budget, Christopher said his modelling suggested both Sydney and Melbourne could be in for a 9% fall in house prices.
If that proves to be right, given the median price of a Sydney home is around $1.8 million and a Melbourne home is at $1.1 million, a 9% fall in house price will cost these voters around $170,000 and $100,000 respectively in lower net wealth!
If house prices don’t pick up by the next election, that realisation of lower wealth could really affect the attitudes of voters. And you can bet the Coalition and One Nation will be beating the drum on this issue in 2028.
G’day Peter,
Your statement that a “9% fall in house price will cost these voters around $170,000 and $100,000 respectively in lower net wealth!” only applies if the voters sell their properties. Most won’t sell and there is every possibility that if interest rates fall in the future prices will pick up again.
We needed a circuit breaker to take the heat out of the housing market as primarily an investment vehicle rather than home.
falling house prices is good news and exactly what the new policies are trying to achieve so that hopefully the millions of younger Aussies who can’t afford to buy a home might get a chance. Those of us who already own homes won’t suffer anything as we are not selling our place of residence. The property market should primarily be there to provide homes for people to live rather than get rich investing tools
Please Peter your comment about Genius or Dope is self evident. Chalmers could never ever be accused of knowing anything about economics or managing the Australian Budget.
While you say he has attacked the supply side of the housing market this is more about the socialist left agenda and less about this. If he was serious about attacking the demand side of the housing market he would significantly cut immigration to align with the homes available. This is the biggest factor of housing demand and rental increases. which will now head north. thanks to his policy on negative gearing and aspiration.
This policy was proved a “DOG” in Keatings time and it is again along with the tax grab on Capital Gains.